How to value family office AuM relative to GP fund for quality of opportunity.

Based on the most helpful WSO content, your approach to valuing family office AuM relative to GP fund economics is logical but requires some nuanced adjustments. Here's a breakdown:

1. Carry Allocations at Family Offices:
   Family offices often differ significantly from GP funds in terms of carry allocations. While GP funds typically allocate 20% carry to the deal team, family offices may not follow this standard. Many family offices are structured to prioritize wealth preservation and long-term growth, which can result in lower carry allocations or even no carry at all. Instead, they might offer higher base salaries or bonuses to compensate for the lack of carry. It's crucial to diligence the specific family office's compensation structure before making assumptions.

2. Evergreen Capital Recycling:
   Your assumption of ~15 years of evergreen recycling is reasonable for a well-established family office. However, the opportunity cost of capital in family offices is often higher than in GP funds, as family offices are deploying their own balance sheet capital. This can lead to more conservative investment strategies, which might impact the overall return profile and, consequently, the carry pool.

3. Comparing $15Bn FO vs. $5Bn GP Fund:
   The math of deploying ~$1Bn of capital per year aligns with your comparison, but the quality of opportunity depends on several factors:

   • Fee Structure: GP funds generate management fees (typically 2% of AUM) that contribute to the carry pool, whereas family offices save on management fees but may not allocate the same percentage of returns to the deal team.
   • Return Targets: GP funds often target higher returns (e.g., 3-5x MOIC) over shorter time horizons (3-5 years), while family offices may have lower return expectations but longer investment horizons.
   • Team Size and Payout Split: Family offices often have smaller teams, which could mean a larger share of the carry pool per individual, but this depends on the specific payout structure.

4. Is Your Assumption Crazy?
   Not entirely, but it oversimplifies the differences in incentives and structures between family offices and GP funds. Family offices are not always aligned with the traditional 20% carry model, and their focus on wealth preservation can lead to more conservative investment strategies. Additionally, the lack of external LPs in family offices means there is less pressure to deploy capital aggressively, which could impact deal flow and carry potential.

Key Takeaways:

• Verify the carry allocation structure at the family office you're considering. It may differ significantly from the GP fund standard.
• Consider the investment strategy and return targets of the family office, as these will directly impact the carry pool.
• Evaluate the team size and payout split to understand your potential share of the carry.

In summary, while your high-level math provides a useful starting point, the assumptions about carry allocations and return profiles need to be tailored to the specific family office you're evaluating.

Sources: Are we in a new Family Office bubble?, Q&A: HF Analyst @ $5bn+ Fund - Breaking In and Transition to Risk-Taking Role, Q&A: HF Analyst @ $5bn+ Fund - Breaking In and Transition to Risk-Taking Role, https://www.wallstreetoasis.com/forum/private-equity/family-office-versus-traditional-pe-shop?customgpt=1, Family office Private Equity - help